Five acquisition trends in 2014

Matthew O’Loughlin, a partner with the law firm Manatt, Phelps & Phillips, LLP, counsels public and private companies, investors and private equity groups in the food and beverage industry.

KANSAS CITY — “Continued robustness” is how one expert describes acquisition activity in the food and beverage industry in 2014.

“For two or three years now, the food and beverage industry has been seen as particularly attractive, and that trend is likely to continue,” said Matthew O’Loughlin, a partner with the law firm Manatt, Phelps & Phillips, LLP, who counsels public and private companies, investors and private equity groups in the food and beverage industry.

Mr. O’Loughlin identified five common themes that defined the year in food business deals and shared his outlook for the year ahead.

“While different deal statistics show varying degrees of change in deal activity compared to 2013, the common thread is strong interest in the industry,” he said.

General Mills' acquisition of Annie's expands the company's presence in the branded organic and natural foods industry.

Healthy investments

Transactions during the year reflected a continued interest in the natural and organic category.

“A good example was in the third quarter with General Mills buying Annie’s, Inc.,” Mr. O’Loughlin said. “Annie’s only went public a couple of years ago and has been doing really well, and General Mills stepped in and acquired them as a proven bolt-on business for General Mills in this growing space.”

“We’ve seen companies maintain a continued focus on their core business and offloading non-core assets,” Mr. O’Loughlin said.

Unilever P.L.C., for example, sold its Slim-Fast, Ragu and Bertolli brands during the year to home in on its more profitable businesses of spreads and ice cream. Unilever said the divestitures represented the final steps in reshaping its portfolio in North America to sharpen the focus within its foods business. In 2013, the company sold its Skippy peanut butter and Wish-Bone salad dressing brands.

In a move that reminded of Starbucks’ 2012 acquisition of Teavana, Peet’s Coffee & Tea in August purchased Mighty Leaf Tea, a producer of specialty teas for food service. The transaction reflected a trend in diversifying into high-growth spaces and complementary revenue streams, in this case, the premium tea market.

“Muscle Milk has a lot of brand loyalty in the growing specialty foods space and provides a company like Hormel with a new market segment beyond its existing product lines, rather than having to develop that from scratch.”

Hormel Foods bought the maker of Muscle Milk in July for approximately $450 million.

It’s all about the synergies

Many strategic transactions during the year were driven by the common acquisition goal of reducing costs and creating synergies in a challenging environment. Though announced at the end of 2013, Sysco’s proposed acquisition of US Foods for $8.2 billion, which remained under antitrust review through 2014, demonstrates such an alignment of complementary core strengths and two competitors joining together.

“It’s obviously a major transaction in the food space and has large consequences from an antitrust perspective,” Mr. O’Loughlin said. “There may be additional divestitures in 2015 to mitigate those concerns.”

Tyson's purchase of Hillshire underscores a trend in expanding market share through acquisition.

Another example, Mr. O’Loughlin noted, was Post Holdings’ April acquisition of Michael Foods Group, a producer and distributor of eggs, potatoes and dairy products, for $2.45 billion. The deal represented the largest transaction to date for Post, which steadily has padded its portfolio with such products as protein bars, peanut butter and pasta.

If the U.S. dollar continues to strengthen, there may be more offshore opportunities for U.S. companies to consider, but general activity during 2015 likely will be driven by the same forces that drove activity in 2014, Mr. O’Loughlin said.

“We’re seeing the same trends expected for 2015,” Mr. O’Loughlin said. “A continued focus on natural and better-for-you category, looking for good brands to bolt on to what you have while the cost of credit remains low, and offloading non-core assets for financial or strategic reasons.”

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READER COMMENTS (1)

By
Barry McKee
1/8/2015 12:56:21 PM

Do you see any further contraction in the ownership of Canadian retail chains such as Metro acquiring the OWFG